Insurance ranks as one of the most vital pillars of a chauffeured transportation company, but it also can be the most costly and aggravating.
As insurance rates are prone to vary with markets, premiums seem to increase without reason or notice, leading operators to seek explanations from their agents or brokers.
The chauffeured transportation insurance market overall has entered a hard market, which happens when insurance companies must increase their premiums to replenish the available funds for claims payments that were depleted during a preceding soft market.
This cycle is endemic to the insurance industry
Matt Mushorn says an underpricing of premiums in the market left insufficient funds to pay claims.
overall, where soft markets consist of an abundance of insurance providers saturating the field, thereby driving premium prices down and gaining a lot of business. But as the claims start to roll in, the low-cost premiums do not collect enough money for the insurance companies to be able to pay out the claims and still turn a profit.
Once this starts to happen, insurance companies will start to abandon the chauffeured transportation industry because it is no longer lucrative, says Matt Mushorn, vice president-senior underwriter, limousine division, of Lancer Insurance Company in Long Beach, N.Y. Then the companies that remain are forced to increase their premium rates to replenish their funds for claims, and the hard cycle begins anew.
The hard market is likely to last another 18 to 24 months before it starts to soften, says Lee Martinez, president of TransCap Insurance in Las Vegas, Nev. “Prices are still going up right now, but after that you’ll be in for another long period of less than premium cost.”
Lee Martinez, president of TransCap Insurance
who has more than 25 years of experience in the industry, predicts a hard insurance market with rising premiums for another 18-24 months.
To weather the storm, operators first must have the patience and endurance to wait out this period of higher rates, but there are also ways they can get the best coverage for the lowest rates possible to keep their businesses balanced during economic cycles.
The Pros Know
Similar to fleet financing, it really pays to invest in an experienced industry insurance professional. There are insurance carriers who specialize in the limo industry as well as contracted specialized brokers and agents who can help make sure operators are getting discounts and a structured plan that most benefits a company, says Mary Vaught of Vaught Insurance Services, Inc. in Houston.
Remember, the professionals are in business to help you with yours, and if you are an inexperienced newcomer, their services can make a big difference in your company’s early growth.
“Loss control” is a term you should be familiar with and ask your broker or agent about in regards to your carrier’s policy. Loss control is a program that employees use to help prevent accidents to property and passengers that result in claims. Many carriers carefully scrutinize whether you have a loss control program at your facility.
If you can document a thorough training program for your chauffeurs that shows you provide instruction on accident prevention, reporting, customer safety, and vehicle maintenance, this can affect the underwriter who determines your premium rate.
Accepting A Fixed Cost
One of the most important things a business owner needs to grow the business and succeed is a predictable cost structure. If costs are varying widely from year to year — and insurance can be a variable market — then it is difficult to budget long-term investments to help bring in more business.
Operators of one to 10 vehicles are spending 12.3% of their gross revenues on insurance, and for fleets of 11 to 50 vehicles it drops down to 7.8%. As the hard market ends within a few years, and premiums fall because more insurance carriers jump into the market, signing on with a new carrier for a lower rate may give you more cash in the short term. But in the long-term, you will see the cycle repeat and might not be happy with premium rates that begin to skyrocket — and when the hard market gets really tough if your carrier opts out of the industry.
By staying current with a loss control program, and by establishing a good relationship with your insurance broker/agent and carrier, you can work together to develop a solid resume of your company for the carrier. This informs the carrier that you are a grade-A client concerned about safety and minimizing claims, and helps you get the best rates possible.
While you have to accept insurance as a necessary cost of doing business, if that cost can becomes consistent and manageable, then you can focus on other aspects of your business that will increase revenue and profit.